Strong 2018 Re-Establishes Memphis’ Status as ‘America’s Distribution Center’

Memphis continued its record-setting ways throughout 2018. Absorption was higher than 2017 by over 735,000 square feet for a total of 6.7 million square feet. Overall vacancy rates fell below 6 percent for the first time in recent history. As of Jan. 1, 2019, vacancy rates were at 5.8 percent.

One would think this would come at the expense of rental rates, however, rental rates stayed constant at $2.77 per square foot until year-end. This represents a slight increase of 10 cents per square foot over 2017.

With an industrial market exceeding 270 million square feet, it’s no wonder how Memphis got its name as “America’s Distribution Center.” Memphis International Airport is the second largest cargo airport in the world, home to 400 trucking companies, the third busiest trucking corridor (Interstate 40 to Little Rock), one of only four cities to be served by five long-haul Class 1 rail systems, the fourth largest inland port and the second largest stillwater port. Home to the FedEx World Hub, as well as UPS and USPS hubs all operating 24 hours a day, 365 days a week, Memphis provides the most cost-effective distribution and logistics operations in the country.

Hank Martin
Business Manager and Vice President,
NAI Saig

While Memphis has been expanding its footprint to the southwest over the past number of years, very little new development has accrued in the core market. Nevertheless, this year marks the first new speculative development in the Southwest submarket. Atlanta-based Robinson Weeks is currently developing a 400,000-square-foot bulk distribution facility within Distriplex Farms. Robinson Weeks believes the Southwest submarket will be able to capitalize on the online retailer’s need to provide the fastest ship times in the country for overnight delivery because of its unique geographic location as the closest submarket to the airport. Robinson Weeks is expanding to the Memphis market based on the fact that the Southwest submarket had the largest absorption rate in the MSA: more than 3.4 million square feet at year-end.

While the Southwest submarket is seeing a rebirth in many ways, the newer and faster growing markets have not shown any signs of slowing down. Desoto County’s absorption rate of over 1.4 million square feet and Marshall County’s absorption rate of over 1.5 million square feet make up a majority of the total absorption for 2018. Desoto County saw the largest lease of the year when Hillwood leased 927,742 square feet in its Legacy Park Development to Olam International. Not to be outdone, Marshall County landed the first Amazon fulfillment center in the state of Mississippi when Panattoni Development leased 554,000 square feet in Gateway Global Logistics Center. While this is Amazon’s first facility in Mississippi, it is not its first investment in the Memphis market. Earlier in 2018, Amazon leased 615,000 square feet on Holmes Road in the Southwest submarket.

The investment market continues to push ahead with some new investors and existing owners looking to increase their portfolios. Two of the most active investors were Sealy & Co. and Faropoint Investments. Sealy finished the year with over 2.7 million square feet of acquisitions, both in the Southwest and Desoto submarkets. This brings the company’s overall portfolio to more than 4 million square feet in the MSA.

Faropoint also had an active year with more than 2 million square feet of acquisitions bringing its total portfolio to around 4.5 million square feet in the MSA.

All signs lead to another active year of development and leasing during 2019. Core5 Industrial Partners, IDI Logistics, Panattoni Development, Exeter Property Group and H&M Co. are all announcing speculative warehouse developments. Memphis should see somewhere between 4 million and 5 million square feet of new product delivered by year-end. Most of this new development will be bulk warehouse facilities, yet in Memphis there is a shortage of small- to medium-size warehouses available. With rates pushing $4 per square foot for older, 50,000- to 75,000-square-foot buildings, there is a growing demand for new development in this product type.

America’s Distribution Center located in the Memphis metropolitan area continues to grow reaching out to new heights of expansion in the Memphis industrial market.

— By Hank Martin, CCIM, SIOR, business manager and vice president at NAI Saig. This article originally appeared in the March issue of Southeast Real Estate Business.

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